Outstanding growth in household spending and business investment in the first quarter will drive the domestic economy. However, continued strength in the loonie will erode net exports, constraining growth in the Canadian economy to 3.1% in 2006, according to the Conference Board’s Canadian Outlook – Summer 2006.

“It may be the ideal time to be a consumer, thanks to strong employment and wage gains, relatively modest inflation and tax cuts,” said Pedro Antunes, director of national and provincial Forecasting, in a news release. “On the downside, the high dollar continues to batter exports, and concerns are growing about the stability of the U.S. economy, where a slowdown would have repercussions on the Canadian and world economies.”

The strong dollar will continue to erode Canada’s trade balance, lowering the price of imports and making many exports less competitive.

The U.S. economy performed well in the first quarter, but high energy prices and rising interest rates are cutting into disposable income, and the U.S. housing market is clearly declining. Although the Conference Board forecasts a soft landing for the housing market, a hard landing would curtail American consumer spending.